PCP v Bank Loan?

MoneySavingMole

I own a BMW 1 Series... It's worth c.£10,000.
I would like a BMW X1... I've found several for £25,000-£30,000.

Now, I'm undecided as to whether PCP is a better option than a Bank Loan or not?

I understand the two options to look a little something like this...

Bank Loan - £20,000 at 2.8% APR
[ MY CAR c. £10,000 ] + [ £350pcm x 48 months ] + [ No final payment ] .... I own the new car.

PCP - 4.9% APR
1. [ DEPOSIT ] + [350pcm x 48 months ] .... I give the car back.
2. [ DEPOSIT ] + [350pcm x 48 months ] + [ £10,000 final payment ] .... I own the car.
3. [ DEPOSIT ] + [350pcm x 48 months ] ... I 'trade in' the car against a new PCP.

I know a BL is the 'MoneySaving' way to do it, as the APR is lower. But why do so many people do PCP?
Is there any benefit to me to go down the PCP route?

lopsyfa

Many people do PCP because it is easier to get since the loan is secured on the car compared to a bank loan which is unsecured. Some banks can also offer loan secured on the car with the money paid directly to the dealer and secured on the car.

Not everybody will get the headline rate of 2.8% and the PCP rate is more likely predictable/constant except for very poor credit history since the loan is secured on the car.

PCP monthly payment will be smaller compared to the car loan the way you want to do it except if you do an hire purchase which is basically the same as a bank loan all other things being equal. But you end up paying more interest with PCP because the balloon payment will accrue interests throughout the life of the loan since it is not progressively paid down.

Most dealers encourage PCP because of the kickback they receive and therefore you may have some discount (or finance contribution) if you buy with PCP. The way to go around this is to take the PCP and then pay off within 14 days but that may be difficult if you don't have the cash therefore involving two finance application in close proximity.

The only advantage I can see for PCP is that bailiffs can't take away the car if you were to find yourself in an unfortunate situation with them.

foxy-stoat

People rent their cars on PCP when they can't afford or don't want to own them outright.

Bottom line, if you want to ultimately own the car and can afford a bank loan - get a bank loan.

k6chris

None of my business, but why do you want to spend £25,000 on a car?

almillar

I think you know, but just for the benefit of everyone, note that at number 3 - your 'trade in' is at a value of £0, plus or minus any equity that salesemen love to talk about.
I'd say the answer to 'why is PCP so popular, is that a lot of people don't have a £10,000 deposit towards that £25,000 car, so they'll just repeatedly keep paying the 'top half' of value of a car every 3 odd years.

DrEskimo

MoneySavingMole wrote: »

I own a BMW 1 Series... It's worth c.£10,000.
I would like a BMW X1... I've found several for £25,000-£30,000.

Now, I'm undecided as to whether PCP is a better option than a Bank Loan or not?

I understand the two options to look a little something like this...

Bank Loan - £20,000 at 2.8% APR
[ MY CAR c. £10,000 ] + [ £350pcm x 48 months ] + [ No final payment ] .... I own the new car.

PCP - 4.9% APR
1. [ DEPOSIT ] + [350pcm x 48 months ] .... I give the car back.
2. [ DEPOSIT ] + [350pcm x 48 months ] + [ £10,000 final payment ] .... I own the car.
3. [ DEPOSIT ] + [350pcm x 48 months ] ... I 'trade in' the car against a new PCP.

I know a BL is the 'MoneySaving' way to do it, as the APR is lower. But why do so many people do PCP?
Is there any benefit to me to go down the PCP route?

Your numbers aren't right.

The personal loan of £20k over 48months at 2.8% is £440 per month.
Total cost (£10k + (£440*48)): £31,120

The PCP of £20k over 48months at 4.9%, with a £10k GFV is £275 per month.
Total cost (£10k +(£275*47) + £10k): £33,925

It's the smaller monthly payments that attract people to PCP. Of course this affordability comes at a price. Paying nearly £2,000 more for the exact same car over the same period. Some don't mind. Personally I value the money I earn and don't like donating it to wealthy finance companies!

I also don't see the sense in being tied to a contract that means it becomes more expensive the more I use it (most charge punitive excess mileage charges).

neilmcl

k6chris wrote: »

None of my business, but why do you want to spend £25,000 on a car?

You're right is isn't.

Birdman2015

k6chris wrote: »

None of my business, but why do you want to spend £25,000 on a car?

Because he/she wants a car that costs 25K. Not too difficult eh?

k6chris

Birdman2015 wrote: »

Because he/she wants a car that costs 25K. Not too difficult eh?

Yes, except the original post is about minimising costs and this is a money saving forum....but I will go back into my box

Ectophile

Something to consider is that if you buy a car on finance, then section 75 of the Consumer Credit Act applies. If something goes wrong, and the dealer won't help or has gone out of business, then you can claim against the finance company.


If you borrow money from the bank, and then use it to buy a car, then you don't have that protection.


But section 75 would apply if it's finance from the bank to buy the car. The difference is subtle, but important.

unholyangel

Ectophile wrote: »

Something to consider is that if you buy a car on finance, then section 75 of the Consumer Credit Act applies. If something goes wrong, and the dealer won't help or has gone out of business, then you can claim against the finance company.


If you borrow money from the bank, and then use it to buy a car, then you don't have that protection.


But section 75 would apply if it's finance from the bank to buy the car. The difference is subtle, but important.

It would also apply if you paid for the car on credit card (even a small amount) and then used some/all of the bank loan to pay off that credit card

Providing the car is under £30,000 of course.